WISCONSIN STATE LOTTERY SYSTEM

WISCONSIN STATE LOTTERY SYSTEM

Introduction to Wisconsin State Lottery System

Lottery Demographics in the USA and Wisconsin State in particular

According to research published in the Journal of Gambling Studies, sociodemographic findings reveal that the highest rate of lottery gambling was strongly associated with individuals from the lowest fifth socioeconomic group (61%), among males (64%), and members of the black communities.

According to the 2015 lottery sales data reviewed by the Wisconsin State Journal, it was revealed that lottery sales in Wisconsin trends higher in lower median income neighborhoods. In 2015, median lottery sales were $111 per person amongst the 67 zip codes with a median annual income of less than $40,000. Whereas median lottery sale per person was $78, amongst 84 zip codes where the median annual income is greater than $70,000.

Thomas Garrett, an Assistant Professor of Economics at the University of Mississippi who has researched state lotteries concludes from his national research that individuals from lower-income spend a higher percentage than the wealthy. He also found those with mid-levels of education were more likely than those with high and low levels of education to play the lottery.

For Wisconsin Lottery Promotions, out of $6.05 million spent on lottery advertising in 2016, nearly $3.2 million was spent on TV and radio ads, $1.1 million was spent on print and digital ads, and $1.9 million was spent on billboard and stadium ads, according to Department of Revenue.

Wisconsin Lottery Legislative Regulations

The Wisconsin Constitution requires that net proceeds from the Wisconsin Lottery be used exclusively for property tax relief for Wisconsin residents. In FY 2017-18, $170.3 million of lottery proceeds were used for property tax relief. In September 2018, the Wisconsin Department of Administration and the Legislature’s Joint Committee on Finance authorized the use of $236.5 million in Wisconsin Lottery proceeds for property tax relief during FY 2018-19 period.

According to Wisconsin Statutory Requirements, at least 50 percent of lottery sales are to be used as prize payments to lottery winners. Though, the prize expense shares fluctuate because of changes in the type of games offered and played. For instance, the Lotto game prize payments are dependent on jackpot amounts and the frequency of winners claiming prizes.

Taxation: Lottery winnings less than $2000 are subjected to no tax deductions. While winnings between USD 2000 – 5000 are subjected to a 7.65% tax for Wisconsin Department of Revenue. Whereas winnings greater than $5000 are subjected to 24% federal tax and 7.65% state tax.

Lottery Expenses (six-year expense trend)

Wisconsin Lottery Operating Expenses are broadly categorized into prize expense, retailer compensation, Game Development and Production, Product Information, and Other expenses (including staff salaries, fringe benefits, supplies and services, and depreciation). With the increase in lottery ticket sales, operating costs also increased by 6.9% from FY 2017-18 to FY 2018-19. A six-year trend in Operating costs (in millions) is as follows: $408.7 (FY 2013-14), $415.4 (FY 2014-15), $451.9 (FY 2015-16), $440.3 (FY 2016-17), $487.2 (FY 2017-18), and $520.8 (FY 2018-19).

Retailer compensation: includes commissions and incentives that are paid to retailers to promote higher ticket sales. With over 3500 retailers state-wide, a six-year retailer compensation breakdown (in millions USD) is as follows: $38.4 (FY 2013-14), $39.6 (FY 2014-15), $43.5 (FY 2015-16), $41.3 (FY 2016-17), $46.5 (FY 2017-18), and $49.7 (FY 2018-19).

Game development and production expenses: covers donated prize expense, instant game ticket printing and delivery costs, and payments to “International Game Technology PLC (IGT) Global Solutions Corporation,” which provides an integrated gaming computer system to account for instant and lotto game activity and to network with retailer terminals. The majority of the developmental expense is allocated to IGT global solutions. A 2-year trend demonstrates that Wisconsin Lottery paid IGT global solutions $13.9 million (FY 2016-17), $17.2 million (FY 2017-18), and $18.3 million (FY 2018-19)

Wisconsin Lottery Sale Trends in 2018 and 2019

The Wisconsin Lottery ticket sales increased by 10.7% (between FY 2016-17 and FY 2017-18) and continued to increase by 6.85% (between FY 2017-18 and FY 2018-19). This increasing trend was attributed to increased sales in Powerball and Mega Millions from three large jackpots in FY 2017-18. There are two types of games offered by the Wisconsin State Lottery: Instant and Lotto.

1. Instant games (scratch-off and pull-tab tickets): Sales of instant tickets increased by 9% or $34.5 million (between FY 2016-17 and FY 2017-18), and consistently increased by 7.4% or $30.9 million (between FY 2017-18 and FY 2018-19)

2. Lotto games (Powerball and Mega Millions): Lotto sales increased by $30.1 million (i.e., 13.9% between FY 2016-17 and FY 2017-18), which was largely due to increased sales in Powerball and Mega Millions resulting from three large jackpots in FY 2017-18. Lotto sales consistently increased by another 6% or $14.8 million (between FY 2017-18 and FY 2018-19)

Wisconsin Lottery 6-year Sales Trend

Wisconsin Lottery ticket total sales (in a million USD) were $568.8 (FY 2013-14), $574.6 (FY 2014-15), $627.1 (FY 2015-16), $602.8 (FY 2016-17), $667.4 (FY 2017-18), and $713.1 (FY 2018-19).

Data on Global Digital Lottery

The Digital Lottery Research (by IGT – International Gaming Technologies)

As lotteries around the world are evolving towards online platforms, it is important to comprehend performance determinants that are responsible for reaching new players, increasing potential to drive innovation, and enhance player’s experience. A 2014 study by Scott Gallagher – IGT’s Senior Managing Director, tested whether six hypothetical determinants of digital lottery performance are in fact associated with the actual performance of the digital lottery. The tested hypothetical determinants include: (i) number of years a lottery has maintained physical/digital presence (ii) are multi-channel players more valuable than single-channel players? (iii) does social influence affect digital channel selection? (iv) does the product type impact lottery performance? (v) does a convenient transaction method inspire digital channel selection? (vi) how do online sales impact in-store spending? Based on these determinants, data was obtained from 19 digital lotteries in Europe, North America, and Australasia, relying on regression and correlation analysis, the research yielded the following findings:

  • Experience Counts: The number of years a lottery has operated a digital channel is a positive determinant of performance. For instance, the top-five digital lotteries have at least ten years of experience in operating the digital lottery.
  • E-commerce, Prevalence is Power: Countries where consumers generally engage in online shopping (e-commerce), the potential for interactive lottery success should be higher. Analysis of the data reveals that for a percentage point increase in e-commerce, a digital lottery will benefit approximately by 2.48% increased share of lottery sales.
  • Content Matters: The type of product offered by a digital lottery can significantly impact performance. The study found that in the interactive space, the best performing lotteries offer sports betting (not available in all jurisdictions), which is a product well-suited to online purchases. The study confirmed that there is a strong, positive relationship between digital lottery performance and the performance of sports betting. In absolute terms, it is suggested that every additional one dollar a lottery has in per capita sports betting corresponds to an additional $0.91 in per capita digital lottery sales.
  • Make it easy for Players to Register and Make Payments: Higher success relies on, in part, on the degree of ease in player-registration and payment options.
  • Look Beyond Bricks and Mortar: The research suggests that the level of physical retail penetration in a lottery market has no significant impact on digital lottery performance, and, if anything, better retail penetration is associated with slightly better digital performance.
  • Growth is Possible Across Multiple Channels: There is not yet any conclusive evidence that a digital lottery detracts from sales via the physical retail channel. Overall, lotteries need to balance this possibility against losing the opportunity to modernize and appeal to a digitally reliant player segment for whom physical lottery is increasingly irrelevant. An analysis of 17 of the 19 lotteries from this study (for which retail data was available for the year pre-launch of a digital lottery channel) shows varied results. In absolute terms, 60% (10 of the lotteries) grew their physical retail business. The study found the mean retail lottery sales compounded annual growth rate over each period (timed differently for each of the sample lotteries) to be 2.7%, with a median of 1.1%.

Potential for Digital Lottery

  • Increase in gross sales volume – attracting new players and increased spending from existing players.
  • Lowered costs – via direct sales to consumers by avoiding retailer compensation.
  • Building a clientele pool – offering incentives to digital lottery games.
  • Online Marketing – paid preferential-based marketing on social media to reach out to masses based on zip code, online search history, and lottery interests.
  • Easy transactions – avoiding appointments and waiting in line, contact-free lottery gaming (safe during a pandemic).
  • Easy-to-use interface – the introduction of mobile applications (omni-channel retailing) – Impact of Digital Marketing for State Lotteries:  In the latest research by Dr. Staci Zavattaro (2017) from the University of Central Florida, illustrated the role and potential of social media marketing for state lotteries. Through her analysis of random lotteries on Facebook, Instagram, Twitter, and YouTube two main marketing trends were identified: (i) a focus on aspirational marketing to promote lottery as a business entity, and (ii) increased dialogue with followers (potential lottery clients).

To illustrate the impact and reach of digital marketing of US state lotteries, here are some examples from social media researchers

  • Some state lotteries promote the winning figures on social media avenues and websites, in case someone in the country does not know about the size of the enormous jackpot.
  • In Florida, lottery officials reported such heavy traffic that their website crashed briefly.
  • Lottery officials use Facebook and Twitter feeds to open a dialogue with potential customers, allowing humor (social media memes) to promote the lottery. By constant communication, they not only attract and maintain clients by building social media engagement through comments.
  • The use of aspirational marketing tactics such as the Oregon Lottery explicitly mentions the lottery to fund state programs in its main messaging. Aspirational marketing tactics let users believe that something greater is ahead.
  • Using Facebook and Twitter to tell a short story about the lottery inception (about section), telling the audience about promotions and where to buy lottery tickets, demonstrating attractive images of games on the main page rather than photographs of lottery beneficiaries. For example, the Michigan Lottery portrayed a promotional image of ‘Double Winnings’ on the Facebook page, which was subjected to negative trolls. Despite trolls, the Lottery agency tried to maintain engagement with the client to help subside trust issues.
  • Some state lotteries demonstrate a public agenda to promote lotteries. For instance, the Pennsylvania Lottery refers to its slogan in its main photo: “Benefits Older Pennsylvanians. Every Day.” By visiting the website, one sees the only explanation as lottery funds support older Pennsylvanians, which is another example of an aspirational marketing tactic.
  • According to Pew Research (2015), as the majority (55%) of Instagram users are younger population (18-29 years), the lottery promotion feeds are meant to appeal those just old enough to play. Instagram relies on images, hence lotteries portraying bounties is another way for image-based aspirational marketing tactics.

Lottery market projections in the USA 2020-2024

  • According to a report on BusinessWire (July 16th, 2020), it is reported that Technavio – a market research company, which has been monitoring the lottery market has predicted that the US Lottery market is poised to grow by $220.52 billion during 2020-2024, progressing at a compound annual growth rate (CAGR) of almost 10% during the forecast period.

Lottery Market in the USA during Pandemic

Impact on Wisconsin Lottery during Pandemic

  • The state Department of Revenue (DOR) demonstrated that during March – June 2020, during which the state’s economy was on lockdown, mass layoffs and furloughs began, the lottery sales increased by 12.3% compared to last year. During that four-month period, Wisconsin lottery players bought $274.2 million worth tickets, which is a healthy jump from $244 million in the same period last year.

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